Emerging and developing economies Flashcards
What does HDI measure?
Health as measured by life expectancy at birth Education as measured by the mean years of schooling
Income as measured by real GNI per capita at purchasing power parity.
HDI pros and cons
Three factors
Easy to calculate
No equality , freedom, corruption, environment measurement etc`
Doesn’t measure quality of education
MPI
Multidimensional Poverty Index
This measures the percentage of the population that is multidimensional poor
GPI
The Genuine Progress Indicator
It is calculated from 26 different indicators grouped into three main categories:
economic, environmental and social
PPD
E.g Mining, agriculture
Over-specialisation
Products often have low YED
Little added value
Manufactured products have the added value
Volatility of Commodity prices
Inelastic demand and supply therefore small changes lead to large fluctuations
Prevent via diversification with profits
Hard to carry out long term investment as a result
Prebisch singer hypothesis
An economic theory that suggests that the prices of primary goods
tend to decline relative to the prices of manufactured goods over time.
Therefore terms of trade fall
Dutch diseas
Country becomes large exporter causing a spike in demand for currency
Increase export prices and reduces competitiveness in other industries
Savings gap/ Harrod-domar model
Increased savings → increased investment → higher capital stock → higher economic growth → increased savings
Therefore any intervention to increase capital stock leads to growth
Doesn’t account for productivity, corruption
Based on wealthier nations rather then less developed ones
Focuses on physical investment only
Foreign currency gap
Currency outflows are greater then inflows
X too low relative to M
Large debt payments requires outflows
Capital flight
Money or assets rapidly leave a country
Due to political upheaval, economic sanctions, war, or changes to government policy. I.e Russia 2022
Reduces the money available for investment, reducing growth & development
Demographic factors
If the dependency ratio is high it means there is less money available for savings & investment
Many developing countries have high dependency ratios
Debt
Prior vast loans lead to high levels of interest repayment
Less gov budget to sepnd
Access to banking
Financial institutions enable individuals & firms to borrow money which can be used for investment or to generate growth
Infrastructure
Attracts FDI and reduces business cost
Hard to generate economic activity
Why china is investing into Africa
I.e Ports railway roads etc
Education & skills
Investing in this supply-side policy increases the potential output of the country
Higher education/skill levels → higher human capital → increased productivity → higher output → higher income
Property rights
property is the main household asset which can be used to secure loans or generate income
Without rights loan cant be secured
Non-Economic factors
(Affecting development)
Corruption(diverts funds)
Poor governance
Wars
Politcal instability
Geography(I.e. Landlocked)
Trade Liberalisation
More trade increases output, employment & incomes
Foreign Direct Investment
More FDI increases output, employment & income
Subsidy Removal
Subsidy removal can increase competition, efficiency, employment, profits & income
Floating Exchange Rate Systems
Appreciation can generate higher incomes as the cost of imported raw materials reduces possibly leading to higher income
Microfinance
An extremely successful policy in many countries, especially Bangladesh. Microfinance helps to break the poverty cycle
Privatisation
May increase competition leading to an increase in output, employment & incomes
Human capital
(Development)
Policies aimed at developing human capital raise the potential output of the economy which leads to an increase in income
Protectionism
This can intervene in natural market forces which lower wage rates. Protecting employees can lead to higher levels of income
Managed exchange rates
(Development/ growth)
In a floating exchange rate mechanism, rising exports will lead to currency appreciation which, in time, will lead to a slowdown or fall in exports. Managing currency prevents appreciation & a slowdown in exports leading to long periods of growing income
Infrastructure
Developing infrastructure reduces the cost of business & makes economic activity easier. This increases FDI, output, employment & income
Joint ventures
Some countries (e.g. India) block foreign ownership of firms (FDI). Joint ventures (JV’s) are a way that firms can get around that. JV’s can increase trade, output, employment & incomes e.g Tata Starbucks allows Starbucks to sell their product through an Indian global steel giant, Tata
Buffer Stocks
Price stability ensures income stability. It also results in excess production which increases levels of employment. It was used extensively in Europe post second world war (Common Agricultural Policy) & is still used extensively in different markets in India, Thailand (rice), Vietnam, Indonesia (rice & coal)
Issues with buffer stocks
Storage is expensive
Transport to & from storage is expensive
It is difficult to analyse & control market forces
It requires all producers to participate honestly in the scheme e.g. producers in Vietnam have been caught importing cheap rice from Thailand & then selling i to the government at a profit in the buffer stock scheme
Lewis Model
Productivity & incomes are higher in the industrial sector compared to agriculture so Lewis argued countries should transform their structure
Succesful in south korea
Lewis Model critique
Critics argue that many developing countries have high unemployment in urban areas; the theory also assumes that manufacturing will be a labour intensive task when in reality it is often capital intensive
Development of tourism
excellent source of employment, revenue & income
Rising global incomes have increased demand for tourism
Ecotourism is developing as a response to negative externalities of consumption that tourism creates. e.g. increased waste, noise, use of scarce resources (drinking water)
Development of primary industries
Large GDP growth due to few primary industries
i.e. Saudi and oil, ethiopia with flowers and coffee
benefits from comparative advantage
Fairtrade schemes
Shift profits from developing nations to developed nations
Fair trade schemes aim to bypass restrictions by connecting ethical buyers
directly with the farmers in developing countries
(As prices often set far away)
higher prices
develop & market value added products
Combats tariffs on manufactured goods (i.e Coco powder vs beans)
Debt relief
High opp cost of debt repayments such as
Loss of infrastructure development
Inability to create a welfare system
Investment in human capital/education
Writing off the entire debt of the most heavily indebted poor countries (HIPC) so that they can focus on building their economies
World bank
They provide reconstruction loans to countries devastated by war
Aid in development
Loans to countries to assist with infrastructure
encourage economic reform & trade liberalisation
International Monetary Fund (IMF)
They oversee exchange rates & the system of international payments that occurs between nations & individuals
Provide member countries with currency to help deal with balance of payments problems
NGOs
Engage in small scale projects giving control to community stakeholders
Draw on local skills
Encourage sustainability & remove the need for aid
Tackle environmental sustainability using local knowledge & resources
Tourism more benefits
Fills currency gap
Attract FDI
Local jobs
Higher tax rev
Is seasonal however & TNC may repatriate profits
